Column: Getting more money into insurance

The NDA government has got insurance amendment Bill passed in Parliament, first mooted by the previous government. The amendments will enable the entry of global reinsurers with 100%-owned branches and increase the overall foreign direct investment (FDI) in the insurance industry from the current 26% to 49%.

With the Indian economy driven by increased consumption and steady savings rates, the total insurance industry premium is set to double to $130 billion by 2020. While there are many aspects of insurance, perhaps, one of the most significant opportunity not only for insurers, but also for the Indian society, is the health insurance sector.

India is one of the fastest-growing health insurance markets in the world. It has grown rapidly since the industry opened up to private and foreign players in 1999 with the establishment of the Insurance Regulatory Developments Authority (IRDA). In 2014, the health insurance market grew to an estimated $2.7 billion from just $150 million, ten years back. The market is due to hit $8 billion by 2020.

There are a number of factors driving this growth. From a workforce perspective, just 10% of India’s 300 million working population work within formal sectors, such as the government, public sector or in large private companies, that often offer health insurance perks. The rest of the population works in the informal sectors, meaning they are either self-employed or are working in family-businesses and therefore may not have a health insurance cover. It is this end of the market that is most dependent on financial security during ill health, and in the absence of health insurance plans, many are liable for medical bills and loss of potential income during the hospital stay.

Demographically, population boom, increasing life expectancy and increased incidences of lifestyle-related diseases means that total healthcare expenditure is growing rapidly and is expected to grow from $70 billion to $280 billion in 2020. Despite this, there is a low per capita spend compared to countries where healthcare is largely funded by the government, meaning that some 62% of total expenditure on health was paid for out-of-pocket and the government spend did not increase much beyond 30%.

India has one of the lowest penetration of pre-paid health coverage and medical insurance in the world, partly due to the geographical size, capital required to invest in developing the distribution and provision network and limited focus on individual health insurance plans by the insurance industry. The limitation on foreign investment rules in insurance did not give much incentive for a lot of foreign experienced players to participate in this market. There are five standalone health insurance companies, and 17 private sector insurance companies offering health insurance. Thus, there is low consumer choice, coverage and competition. Even today, India has just 26 insurers, with four nationalised insurers enjoying a market share of 58%. Compare this with the UK, which has 911 general insurers.

Active foreign participation is critical for the sector, it might help improving standards and driving competition to offer better quality products, increase customer coverage and choices. The increase in the FDI limit may create significant opportunities for foreign players to enter the market either through a joint-venture, merger or acquisition.Yet, there are some significant challenges. For instance, finding the right company to acquire or partner with for a balance of local knowledge and cultural compatibility in the boardroom between the two organisations remains a tough task. Firms must also be comfortable with local regulatory requirements, so working knowledge of the regulatory and business environment in India is also essential for developing a successful business model.The government has promised to revamp India’s healthcare sector and make services more affordable, and accessible for all walks of the society.
With the doors to India’s insurance industry opening, the health insurance sector will play an increasingly important role in delivering this commitment to Indian citizens.